Verizon Wireless is no longer allowed to block apps that allow people to use their 4G LTE smartphones as Wi-Fi hotspots. And the carrier will pay the Federal Communications Commission a $1.25 million fine, the government agency said Tuesday.

The FCC has been investigating Verizon's business practices for the last 10 months to make sure that its 4G LTE service complies with so-called open access rules that were established as part of the 700 MHz spectrum auction in 2008. Verizon is using this spectrum to offer its 4G LTE service.

During its investigation, the FCC found that Verizon had asked Google to remove applications in its Android marketplace because these apps allowed subscribers to circumvent its $20 "tethering fee." Tethering allows subscribers to use their smartphones as wireless modems, providing Internet access to other Wi-Fi enabled devices.

The FCC said that by blocking these applications, Verizon has violated the open access conditions that were placed on the block of spectrum the company is using to build its 4G LTE network.

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Specifically, the agency's rules for this spectrum state that licensees offering service on C Block of 700 MHz spectrum "shall not deny, limit, or restrict the ability of their customers to use the devices and applications of their choice on the licensee's C Block network."

When initially questioned about these fees, Verizon stated that the additional fee reflected the fact that customers who tether laptops or other devices often use more data than others. At the time of that response, Verizon Wireless required not only unlimited data plan customers, but also customers who paid for data on a usage basis, to pay this additional fee.

Under the terms of its settlement with the FCC, Verizon will make a voluntary $1.25 million payment to the U.S. Treasury. The carrier has also notified Google that it no longer objects to the tethering apps. The carrier has also agreed to a plan that will ensure its compliance with its rules.

Verizon says that the company never intended to block any apps. And it said that its policy is to allow any lawful apps on its devices.

"Verizon Wireless has always allowed its customers to use the lawful applications of their choice on its networks," the company said in a statement. "And it did not block its customers from using third-party tethering applications. This consent decree puts behind us concerns related to an employee's communication with an app store operator about tethering applications, and allows us to focus on serving our customers."

Under the agreement, a Verizon representative said that the company will allow all customers with a tiered data plan, whether they have a 3G smartphone or a 4G smartphone, to subscribe to a third party app that enables free tethering. The company said customers may also still choose to subscribe to Verizon's Mobile Broadband Connect service if they still have an older plan and they want a separate bucket of data for their smartphone and the devices that they tether to the service. But if they do not want to subscribe to the Mobile Broadband Connect service, they are not required to do so. And if they are already subscribed they may cancel their service with no penalty.

But the situation is different for customers with grandfathered unlimited data plans. According to the consent decree "customers on unlimited usage plans must continue to pay an additional fee to tether their devices."

New customers won't have to worry about this at all. Verizon recently changed its service plan pricing to include the tethering capability at no additional charge. So for new customers, this should not be an issue. But existing customers can still choose from older service plans, and therefore now existing customers can keep those old plans and still download an app that will allow them to tether their device without being charged a fee to do so.

Updated 3:35 p.m. August 1, 2012:This story was updated with additional information from Verizon to clarify which customers will be charged a fee to tether.

About the author

Marguerite Reardon has been a CNET News reporter since 2004, covering cell phone services, broadband, citywide Wi-Fi, the Net neutrality debate, as well as the ongoing consolidation of the phone companies. E-mail Maggie.
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